January 6

[Nugget #16] Anchors are heavy and durable

Anchoring belongs to the classic psychological pricing effects pretty much everyone knows: You expose customers to a random, uninformative number, and it still influences one’s price evaluation.

High anchors make a price look more acceptable, low anchors bring your willingness-to-pay (WTP) down.

Imagine you are driving to a car dealer. You give her/him all the hard facts about the car. Then you give your estimate that the car might be worth $2,800 (low anchor) / $5,000 (high anchor). You ask the car dealer whether the car is worth the price and what s/he estimates that approximate price of the car was.

Anchoring works also with experts and professionals. The car dealer’s price estimate rose from $2,520 to $3,563 by more than one-thousand dollars corresponding to over +40% when a higher anchor was presented (Mussweiler/Strack/Pfeiffer 2000).

Anchoring is nothing new and applications are numerous (see Handbook on the Psychology of Pricing – pages 104-114). Actually, researchers refer to this as an “old trick from the experimental psychologists’ arsenal” (Ariel/Loewenstein/Prelec 2003, p. 75).

We understand anchors weigh heavy on customers’ judgment – but we might wonder for how long? Does the effect disappear once the anchor disappears?

Yoon and Fong (2019) exposed participants in various studies to random anchors and solicited their willingness-to-pay (WTP) for those products at different points in time. The researchers found that…

  1. anchors raise WTP

  2. the higher the anchor, the higher is WTP

  3. WTP is highest right after exposure to anchor

  4. anchoring effects decline steeply shortly after exposure to anchor, but stabilize at a long-term effect

  5. 40% to 50% of the additional WTP that an anchor created right after exposure still exists after two months

  6. reminding on the anchor does not affect the additional WTP created when the anchor was presented the first time

In short, never underestimate the impact of a good anchor – they are heavy and they are durable.

References
Ariely, D., Loewenstein, G., & Prelec, D. (2003). “Coherent arbitrariness”: Stable demand curves without stable preferences. The Quarterly Journal of Economics, 118(1), 73-106.
Mussweiler, T., Strack, F., & Pfeiffer, T. (2000). Overcoming the inevitable anchoring effect: Considering the opposite compensates for selective accessibility. Personality and Social Psychology Bulletin, 26(9), 1142-1150.
Yoon, S., & Fong, N. (2019). Uninformative Anchors Have Persistent Effects on Valuation Judgments. Journal of Consumer Psychology. 29(3), 391–410.


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